RBI is set to launch a new tranche of Sovereign Gold Bonds (SGB) on December 18, 2023. Though gold is performing well amidst global volatility, experts differ on gold's necessity in portfolios.
The Reserve Bank of India (RBI) will issue fresh tranches of Sovereign Gold Bonds (SGBs) as part of the 2023-24 series, for investors eyeing gold as an investment avenue. The subscription for Series III of SGB 2023-24 is scheduled to open on December 18, 2023, and will conclude on December 22, 2023. The successful applicants will be issued SGBs on December 28, 2023.
The issue price of the SGBs will be less by Rs 50 per gram for the investors who subscribe online and pay through digital mode. To apply online, investors should also furnish their email IDs, which should be uploaded on the Ekuber portal of RBI with subscription details. Payment can be made through cash (up to Rs 20,000), demand drafts, cheques, or electronic banking.
With a tenure of 8 years, these bonds allow premature exit after the 5th year. Investors receive a 2.50 per cent annual interest rate on their SGB investments, credited semi-annually to their bank accounts, and the final interest payment at maturity, along with the principal amount. The minimum investment allowed is one gram, while individual investors can subscribe for up to 4 kg.
Unlike physical gold, SGBs have the obvious advantages of being free from making charges, storage expenses, and purity concerns. Further, upon maturity, no tax is levied on redemption. SGBs can be traded on stock exchanges within a fortnight of issuance.
The historical appreciation of gold prices has yielded good returns to investors. Notably, the SGB 2015 Series I, which was the first SGB issued in India was allowed redemption by last month's end. It gave annual returns of 12.9 per cent. On average, the yellow metal returned 11.2 per cent in the last 20 years, according to a small case report.
The redemption value is determined based on the simple average of the closing price of gold with a 999 purity over the preceding three working days, as reported by the IBJA.
While investing in SGBs offers a relatively secure option, during times of inflation or global economic uncertainty, it is not free from market forces and can exhibit fluctuations.
Avinash Luthria, SEBI RIA at Fiduciaries, underscored SGB's gold's volatility saying gold had lost 83 per cent of its international purchasing power between 1980 and 2001, and has not yet reached inflation-adjusted price 43 years later. Gold has fared better in Rupees due to currency depreciation and import duties, and investing in it remains risky. However, he notes it is the most tax-efficient gold investment.